Civil Jurisdiction And Shortfall On Mortgage Debt After Repossession

On a number of occasions where a property has been repossessed and sold, the sum realised by the sale does not meet the sum due under the terms of the mortgage. There is therefore a shortfall and to recover this shortfall lenders need to raise an unsecured action against the borrower.

This would seem a simple enough course of action. However, what happens when a borrower moves from one legal jurisdiction to another, i.e. when a borrower who has obtained a mortgage in England subsequently moves to Scotland? Or what happens when a borrower who has obtained a mortgage in Scotland subsequently moves to England?

In these scenarios lenders have to carefully consider which Court will have jurisdiction to hear the claim. The rules relating to civil jurisdiction in the United Kingdom are generally found within the Civil Jurisdiction and Judgements Act 1982, as amended (the 1982 Act).

Exclusive Jurisdiction – Agreement of the Parties

The first step a lender should take is to read over the terms and conditions of the mortgage which applies. This is because there may be a clause which stipulates a court in a certain part of the United Kingdom will have jurisdiction. If there is such a section, the lender and the borrower will have already agreed that either Scottish or English courts should hear any actions arising from the mortgage. In terms of section 12 of and schedule 4 to the 1982 Act, the agreed Court will have exclusive jurisdiction, i.e. where such an agreement exists, the lender should not raise an action in any other Court.

It is worth pointing out though, that in circumstances where parties have previously agreed the Courts of a certain part of the United Kingdom will have jurisdiction, parties can form a new agreement. The lender can therefore raise an action in a Court which was not conferred jurisdiction by the terms and conditions of the mortgage, where they have obtained consent from the borrower to do so.

Domicile

If the mortgage is silent with regards to jurisdiction, lenders should raise an action under the general rule of the 1982 Act, and that is where the defender is domiciled. Domicile is defined as a person’s true, fixed and legally recognised residence. A borrower is deemed to be domiciled in a particular part of the United Kingdom if he resides there and if he has a, ‘substantial connection’ to the place where he resides. If a borrower has stayed somewhere for three months, there is assumption (which can be proved wrong) that he has a, ‘substantial connection’ to that place.

The Applicable Law

Once the lender has established which Court has jurisdiction, the next step is to establish which law should be applied to the Court proceedings. For example if a borrower is found to be domiciled in Scotland and an action is raised in the Scottish Courts, if the proper law of the mortgage contract is governed by English Law, the Scottish Court would be required to apply English law. The borrower in that instance would need to seek legal representation from an appropriately qualified Solicitor.

Beware of Statutory Time Limits!

Claims for recovery of mortgage shortfalls have different statutory time bar limits, dependent upon jurisdiction. Once the time bar limit has passed and no action has been raised and served on the borrower, the lender is prohibited, by law, from seeking recovery of the shortfall. In terms of English law a lender generally has 12 years to begin the process of seeking repayment of any shortfall debt for the capital balance and 6 years for the interest balance.

However, take note as some lenders have reached an agreement with the Council of Mortgage Lenders not to pursue a shortfall once a 6 year period has lapsed. In Scotland, the time limit is shorter and the lender has a period of 5 years to raise an action and seek recovery.

Enforcement of Foreign Judgments

Once a lender is in possession of, say, a Scottish judgment, yet requires enforcing it in England, how does the lender go about enforcing it? The judgments of the courts in one jurisdiction are not directly enforceable in the other and a process needs to be followed so that the foreign judgment becomes recognised by the Scottish or English Court.

In England an individual would need to apply for a Certificate of Money Provision, and in Scotland the Scottish Court would be required to issue a Certificate of Judgement. The English Certificate would need to be formally registered in Edinburgh, in the Registers of Scotland.

In England, the Scottish Certificate would require to be registered in the Central Office of Queens Bench Division of the High Court in London. Once registered, a judgement can then be enforced and the lender will be able to use the recovery procedures of that jurisdiction.

The law in relation to civil jurisdiction is inherently complex, therefore if you have queries regarding any aspect of this article, please do not hesitate to contact us and we will be happy to provide advice.